A history of pricing pollution (or, why Pigouvian taxes are not necessarily Pigouvian)

Author / Creator

Banzhaf, H. Spencer, 1969- author

Available as

Online

Summary

The standard history of modern environmental economics often views it as an application of A.C. Pigou's theory of externalities, refined over the decades and applied to environmental problems in th...

The standard history of modern environmental economics often views it as an application of A.C. Pigou's theory of externalities, refined over the decades and applied to environmental problems in the 1960s, when the first detailed proposals for pricing pollution were outlined by Allen Kneese, Thomas Crocker, John Dales, and others. However, the historical literature has noted problems with this narrative, including a 30-year gap in discussions of such applications and few actual citations to Pigou. This paper offers a simple explanation for this puzzle: Namely, pollution pricing is not (necessarily) Pigouvian. It argues that the early applied literature on the topic was rooted more in questions about common property resources and increasing returns from developing natural resources. Both topics were treated by broad literatures by the 1960s, including distinctly American traditions not particularly associated with Pigou.

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